Five Years Of GST: Lessons Learned For The Way Ahead

Four years ago, I had penned a column in BQ Prime at the end of the first year of the Goods and Services Tax regime, looking at how the law had been implemented. I had pointed out a few thorns in the initial implementation but overall was of the opinion that this was a welcome move. I am happy to note that even after five years, my assessment of the GST regime continues to be positive and I would like to call this GST law a success for our nation. I see many more positives despite various issues faced in the journey so far.

I would like to start by commending the efforts of the government in bringing so many taxpayers within the fold of GST. This is reflected in the GST revenue collection which increased every month in the 2021-22 financial year and has now held steady at over Rs 1.4 lakh crore for the fourth consecutive month. While GST has been a brilliant tool for revenue collection both for governments at the centre and the states, it has also reduced the possibilities of tax leakages by widening the tax base.

A Proactive GST Council

In the first year of GST, the GST Council had met 27 times. Just this week, the GST Council held its 47th meeting. One of the most significant achievements of the GST is the cooperative federalism exhibited by the centre and states in their resolve to mitigate problems faced not only by the governments but also by the taxpayers by holding periodical meetings to this end. The GST Council has been taking decisions including suggesting amendments in the law to redress the grievances of the industry. It is heartening to see GST decisions being swiftly followed by necessary legislative and executive action. 47 meetings within five years demonstrate the proactive role played by the GST Council in the implementation of the law.

One fallout of frequent and reactive amendments is a lack of certainty in the law when it comes to rates, the availability of credit, etc. Constant changes to the rates have left industries confused which in turn prevents them from taking bold decisions.

Dire Need For Appellate Tribunal

One area of concern I would like to specifically highlight is the adjudication and appeal mechanism under GST. It is said that there is no equity in tax. But a lack of an appellate tribunal, even after five years of implementation of GST goes beyond the above adage. The past 18 months have seen increased investigations and consequent demands being made against taxpayers. Similarly, there has been a delay in the processing of, and in many cases the outright rejection of, bona fide refund claims filed by exporters. These are highly prejudicial to taxpayers as it has a direct impact on the bottom line of any company.

In the absence of the GST appellate tribunals, parties do not have any remedy against the orders so passed.

Taxpayers are constrained to file writ petitions in the High Courts challenging the order passed by the first appellate authority, hence flooding the High Courts with avoidable litigation. In its 47th meeting, the GST Council has decided to constitute a group of ministers to address the issue of GST tribunals and make suitable recommendations for amendments to the GST Act. I welcome this decision and hope that this agenda is acted upon seriously.

Advance rulings is another area in which the GST Council should take a relook. While advance rulings were a step towards ensuring certainty for assessees to prevent future litigation, this has been plagued with issues such as the constitution of the authority without judicial members, an absence of authorities in some states such as Delhi, and numerous instances of divergent views given by authorities of different states. The same taxpayer gets different rulings on the same issue in different states and this impacts its business.

Material On-Ground Benefits Augur Well For Future

There are many positives I would like to highlight. The seamless credit flow between states has unlocked the previously-locked VAT credit that manufacturers could not avail of and CENVAT credit that traders could not benefit from. This has been a huge factor in the acceptance of the GST regime while also ensuring that GST has not led to any inflationary trends in the market. The IT infrastructure has also been strengthened and a push for filing regular returns has also encouraged financial discipline and prudence amongst businesses. The recent GST Council decisions also point toward a forward-looking regime for unblocking working capital by recommending amendments resulting in expeditious disposal of refund claims. This will encourage exports of goods and services out of India, positioning us as future global leaders.

One would be tempted to keep looking back and dwell on GST's journey over the past five years. But I am looking ahead now because it is what the following years hold for businesses and the nation itself is far more exciting.

V Lakshmikumaran is Managing Partner at Lakshmikumaran & Sridharan.

The views expressed here are those of the author's and do not necessarily represent the views of BQ Prime or its editorial team.